UK FTSE 100 breaks new highs despite cost of living crisis

The sun rises over the city on February 6, 2023 in London, UK.

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LONDON. The UK is facing the weakest growth outlook in the G-7 and a range of rising cost of living challenges that are pushing the poorest into crisis and severely reducing middle-income household budgets.

At the same time, more investor money has never been invested in the largest British companies. FTSE 100 the index broke three intraday records in the past week, starting last Friday and hitting new highs in the Wednesday and Thursday sessions.

This also follows from the end of the year in markets that have been dominated by doom and gloom, with sell-offs in risk assets and pan-European market indices. Stokes 600 in USA S&P 500 to the Shanghai SSE Composite appearing bruised.

The most recent spike in the FTSE 100 index shows that it is not only happening despite the tough pressure on the cost of living, but also associated with it.

Energy companies such as shell And HELL reported record profits and promised higher dividends to shareholders, driving up their stock prices (with calls for higher contingency taxes to support consumers struggling with higher bills that did little to reduce their appeal).

The FTSE’s rise to an all-time high of 7944 on Thursday afternoon in London was driven by Standard charterone of many banks whose profits soared as a result of rising interest rates.

Meanwhile, strong inventories also pushed the index up as they were fueled by rising prices, supply constraints and, more recently, the prospect of a resurgence of the Covid-19 pandemic in China.

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FTSE 100 chart.

“The UK FTSE 100 does not cover the UK domestic economy,” said Janet Mui, head of market analysis at RBC Brewin Dolphin, noting that more than 80% of companies’ corporate revenues come from overseas markets.

Mui told CNBC that a confluence of factors has propelled the index to an all-time high, including the fall in the pound sterling helping those overseas earnings (collected in dollars); its heavy weight in energy, commodities and finance; as well as the relatively high performance of key security products in consumer products such as Unilever – and healthcare – for example, AstraZeneca.

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What the UK stock market has often been criticized for – the absence of noisy new technology companies and the predominance of adherents of the “old economy” – has become a boon when monetary and financial cycles have changed.

Mui added that the broader FTSE 250 index has stronger domestic ties but still has 50% of overseas revenue.

Suzanne Streeter, senior investment and markets analyst at Hargreaves Lansdown, said among other factors, FTSE’s rise can be attributed to glimmers of hope in the economic picture, with property developer Barratt reporting a “modest increase” in new home bookings, among other factors. She also pointed to forward-looking signals that Europe is avoiding a recession and an easing of the energy crisis.

She noted that banks would perform even better if their bottom line improved but bad loans were not repaid.

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Shell share price.

Factors weighing on the UK public include rising interest rates pushing up borrowing costs, food price inflation at a record high of 16.7% and headline inflation above 10%.

A report published on Wednesday by the National Institute for Economic and Social Research, argued that the UK is likely to avoid a technical recession this year – although growth will be close to zero – but one in four households will not be able to fully pay their energy and food bills, and households those with middle incomes will face a drop in disposable income of up to £4,000 ($4,873).

And the gap between stock market gains and the bleak outlook that many households still face is irritating to many.

“It’s a cruel paradox, but on the day the FTSE 100 index hit an all-time high, campaigners on behalf of up to 7 million low-income people in the UK called on the government to expand the support they’ve been given for their electricity bill,” CNBC told CNBC. Richard Murphy, Professor of Accounting Practice at the University of Sheffield School of Management.

In March, the UK government is set to end a massive household energy bill offset program that has been in place all winter. It comes as many governments are trying to cut back on fiscal support to rein in public spending, and the European Central Bank recently said that maintaining support packages risks fueling inflation.

But Murphy said that without support and with increased bills, “many will not be able to make ends meet and end up hungry, cold or even homeless.”

“The picture this paints of a country extremely divided by income and wealth is almost Victorian in its harshness,” Murphy said.

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